Saturday, September 15, 2012

QE - To Infinity and Beyond

"Insanity: doing the same thing over and over and expecting different results." ~ attributed to Albert Einstein

On Thursday, the Fed announced an unlimited mortgage security purchase program of $40 billion a month and continued low interest rates through 2015 with the stated intention of driving unemployment below the current 8+% level.  Buying mortgage security should continue to keep long term interest rates low also. 

Call me a skeptic, but I don't see the connection between continued low interest rates and growing jobs.  If low interest rate effectively created jobs, then the unemployment rate should be significantly below 8% by now given that interest rates have been low since 2009.  The main impact that QE1-2 delivered was a rally in the stock market and commodities, such as precious metals.    Unfortunately, previous QEs have not significantly helped housing.  Another impact was the punishing of savers, since interest rates on fixed income instruments, e.g. savings accounts, CDs and bond, are at record lows.

My gut tells me this is going to end badly due to unintended consequences of QE Infinity.  Hopefully, Mr. Bernanke is smarter than my gut :-)

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This is not financial advice. Please consult a professional advisor.

Copyright © 2012 Achievement Catalyst, LLC

1 comment:

Kurt @ Money Counselor said...

The QE series does seem like an experiment with the potential to end very badly if it fails. Seems Bernanke is focused solely on not being the Fed Chair who presides over Great Depression II. He may help accomplish that, but at what cost is the question, as your gut is telling you.